Legislature cracks down on Internet payday lenders

The Senate voted this morning to crack down on out-of-state Internet payday and car title lenders operating in Oregon by limiting the annual interest rate they charge to 36 percent.

House Bill 2203 is part of a package of bills moving through the Legislature designed to eliminate triple-digit annual interest rates commonly charged by payday and car title lenders in Oregon.

The Senate voted 20-10 in favor of the bill with no debate. Sen. Brad Avakian, D-Bethany, member of the Senate Commerce Committee, briefly introduced the bill to the floor. The House already passed it, but will vote again on minor amendments. The bill then goes to Gov. Ted Kulongoski, who has said he will sign it.

The bill regulates out-of-state payday and car title lenders making loans in Oregon through the Internet or by telephone or mail. It requires that they charge an initiation fee of no more than $10 per $100 lent on a small loan and no more than 36 percent on an extension or rollover of the loan.

The Legislature has approved the same regulations on Oregon consumer lenders. They take effect July 1.

The measure approved today would also give the state Department of Consumer and Business Services authority to create an electronic tracking system that would enable payday and car title stores to check whether an applicant for a loan owed money to other lenders.

Car title and payday lenders say the regulations will put them out of business. Most borrowers like their services, they say, and those with poor credit will have nowhere to turn for cash if the lenders are forced to leave.

The 360 payday lending stores in Oregon on average charge 528 percent annual interest on short-term loans, typically for about $300 for two or three weeks. That means that with three rollovers, a borrower would pay $240 in interest for a $300 loan. Oregon payday lenders made 841,000 loans, including rollovers, in 2005, the most recent year for which the state has figures.

Consumer advocates, religious leaders, food bank operators, the AARP of Oregon and other critics say an interest rate cap is needed to prevent payday and car title lenders from preying on vulnerable and financially desperate low-income Oregonians.

Some borrowers unable to repay their loans turn to a second lender to pay the first and a third to pay the second as they sink in a downward spiral of debt.